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UK businesses are missing out on £85 billion each year due to a lack of digital capability, according to the latest Lloyds Bank Business and Charity Index. The report highlights that this issue is particularly acute for sole traders, of which 41% have low digital capability. Despite this, UK business looks set to enter a new digital age.

The new report shows that 99% of SMEs and charities have now moved online, up from 92% and 76% respectively since the report was first commissioned in 2014. Businesses and charities are increasingly recognising how important digital is to success. The number of SMEs seeing digital as relevant has increased by 31% to 71% and for charities it has risen from 24% to 67% over the same period.

The largest study of its kind into digital capabilities of the UK’s SMEs and charities, the Index shows that being digitally savvy can pay huge dividends. Businesses embracing advanced technologies including cloud IT, online accounting software and digital training tools could generate more than £100,000 in additional annual turnover than those without.

The benefits can go beyond finances too, with 2.5m businesses also saving time through digital, more than twice as many compared to 2014. SMEs and charities with advanced digital capabilities are able to save a day a week, showing that the benefits of digital go beyond the bottom line.

It is therefore unsurprising that with nearly all businesses nearly online, digital capability is at the highest recorded. Over the last five years, the digital capability score for SMEs has increased by 11 points to 56, and for charities the score has almost doubled, from 24 to 46.

Nick Williams, Managing Director, Commercial and Business Banking Transformation, Lloyds Banking Group, said “Businesses and charities are seeing that moving online is not only helping increase revenue, but it is also improving productivity levels. The potential £85bn in revenue that SMEs could generate demonstrates the tangible impact of advancing digital capability and skills. The improving digital capability of businesses has led to an increased awareness of potential cyber threats and we can see organisations turning their attention to protecting themselves online.”

In the charity sector, digital skills are rapidly growing and more than half (52%) of all charities now have all five ‘basic digital skills’. Charities are using these digital skills to improve their online presence, and as a result, compared to last year charities are: • 24% more likely to create a website • 31% more likely to create social media communities to engage with people • 31% more likely to use social media to promote the charity

Over the last five years, charities’ annual growth in digital channel usage has surpassed SMEs. The research recorded that the proportion of charities with the lowest level of digital capability has fallen from 42% to 8% since 2014, with nearly a quarter (21%) now having the highest levels of capability compared to just 4% five years ago.

More charities than ever before (59%) are now actively using social media. They are also converting online presence into donations. 57% of those using Facebook, twitter or other social media platforms have reported an increasing turnover – a 12% improvement on last year.

With the shift online, cyber security is a growing concern for SMEs and charities. There has been an increased focus on the importance of cyber protection. To counter the online threat, the research shows that more businesses than ever have strong website security infrastructure in place (72%, up +9% year-on-year) to protect websites from cyber threats.

Despite the focus, more than a quarter (28%) of businesses say they don’t understand what cyber security is. This is especially acute amongst the organisations with a lower digital capability that have requested more support and guidance to protect them against online threats. One in five SMEs are actively seeking cyber security skills, the most sought after skill amongst this group.

Margot James, Minister for Digital and the Creative Industries, said “This Index provides vital insight for government and helps us develop policies to boost people’s digital skills. I’m hugely encouraged by the progress we are making because the digital skills of our small businesses and charities are now at the highest levels since the Index began in 2014. We are committed to building a world-leading digital economy that works for everyone and through our Digital Skills Partnership have delivered more than 2.5 million training opportunities.”